Times of E’s series: Deep Dives into Secondary Cities was sponsored by Armory Square Ventures (ASV). ASV is a returns-oriented, mission-focused technology venture capital firm based primarily in the Finger Lakes region of New York State. It is an optimism engine for secondary cities and a community catalyst for regions outside Silicon Valley.
ROCHESTER, N.Y. – Little ballerinas smile down from a giant 1990s-era Kodak Gold film advertisement, advising visitors to “Take Pictures Further.” They’re hanging on the wall in an office in the gargantuan and nearly empty innovation center on the Eastman Business Park. Once, 15,000 people worked on this campus of 154 buildings in Rochester, N.Y. That was back in Kodak’s heyday, when print and chrome photography was the norm, before digital cameras, before the iPhone. Kodak declared bankruptcy in 2012, it had been one of the most successful companies in the U.S., a beacon of the golden age of capitalism and a famously generous employer whose benefits lifted many families into the middle class.
Today, Kodak’s innovation hub feels like an American version of Ozymandias, the poem by Shelley, which points out the hubris of a king whose decaying statue marks the desert in an ancient land. But appearances can be deceiving. And dust, it turns out, is a topic of immediate relevance.
A Visit to Rochester
Shelby Nelson, the chief technology officer of Mosaic Micro, stops me in front of a swinging doorway deep in the innovation center, and asks me to put on a coat and some booties. We’ll only be looking through the window, but even a speck of dust – “People are dust machines,” she tells me cheerfully–could interfere with Mosaic’s chip fab. The tiny startup, which has just been awarded grants from New York State and the federal government, makes glass packaging for microchips. Chips created this way are particularly useful in 5G networks and Internet of Things devices. When Kodak started renting space in the old innovation center, the situation was perfect, because there were “clean rooms,” which are important for chip fabs.
Mosaic is one of dozens of innovative startups that call Rochester home, as I discovered on a visit there this spring, part of the Deep Dive reporting tour sponsored by Armory Square Ventures. The post-pandemic era is bringing a sea change for communities like Rochester, Pittsburgh and Indianapolis. In Pittsburgh, an advanced biomedical manufacturing project is taking shape at an old steel processing site. In Indianapolis, agtech and SaaS software industries are growing.
The Most Promising City in the Country?
In 2019, MIT economists Jonathan Gruber and Simon Johnson put Rochester at the top of a list of 102 cities for its most potential to become the next American innovation hubs. The biggest factor: the colossal companies like Kodak and Bausch & Lomb that once dominated the city left behind a highly educated entrepreneurial class, which has now gone on to start companies.
Thanks to billions in federal funding and an emotionally and rationally driven national push to reshore manufacturing after the pandemic–that potential may be turning into a reality in Upstate New York. The semiconductor sector, which is expected to grow to $1 trillion by 2023, advanced optics, and medical technology, are all growing industries in the region. Even Kodak is coming back, albeit quietly. With about 4,200 employees globally, it continues to serve the commercial photography market and is also using its printing expertise in innovations like applying light-filtering technology to curtains.
But the bigger story, in Rochester, is the companies that have grown out of Kodak’s remains over the last decade. Mosaic Micro is one — Nelson worked at Kodak, so opening the startup office in the innovation center on the Kodak campus was in some sense a homecoming.
Many expect to grow significantly, once the federal money machine grinds fully into action.
“As soon as the Chips Act went through in 2022, we knew it was important to keep hiring and keep expanding the building,” said Rick Plympton, CEO of Optimax, the country’s largest precision optics company, which expects more business out of the federal investments in innovation in to start this fall. “We’re hearing from the big players that they’re resetting. And they’re telling us to get ready to run hard and fast.”
Manufacturing Gets a New Day in the Sun
It’s as if the pandemic, the war in Ukraine and rise of China as a military power woke the United States up to what people in old manufacturing communities had been saying all along: the U.S. has gone too far, and given too much of its manufacturing base away.
“What is exciting is the realization (on others’ parts) that if the short-term off-shoring thing is the cheapest thing – that isn’t necessarily the best thing,” said Nelson. “A lot of innovation comes when you actually make things.”
The CHIPS Act provides $52.5B to increase semiconductor manufacturing in the U.S. and reduce reliance on foreign sources (read: China and Taiwan). Of that, $39B is direct subsidies to companies building manufacturing facilities, and $11B is to support semiconductor R&D. Some of that may be earmarked for small companies. In the meantime, Micron has already announced it would spend $100 billion over 20 years just down the road from Rochester, near Syracuse.
Tends of billions more dollars are expected to flow to innovation and advanced manufacturing through other programs and agencies, including the Department of Defense. Private company investments will multiply the total. Mosaic Micro is poised to benefit, according to Paul Ballentine, Mosaic co-founder and the executive director of the Center for Emerging and Innovative Sciences at the University of Rochester.
“We plan on scaling to be a large international company,” Ballentine told me, adding by email that the company is raising an A round. “I’m confident that we will be successful at doing that.”
Rochester also has a leg up on one of the big concerns surrounding microchip manufacturing (and advanced manufacturing in general): Where will the workforce come from? Along with the University of Rochester, a top research university, the community is also home to Rochester Institute of Technology, which established the first microelectronics manufacturing program in the country, according to Ballentine, and MCC, the largest community college in Upstate NY, which has a program in optics manufacturing and precision machining.
Post-pandemic, the Struggle to Bring People Back
Rochester feels like a lot of mid-sized Northern cities: It’s struggling to bring people back to the downtown, as work and living patterns have changed. Infrastructure is aging, and the political and racial tensions evident around the country are here, too. Crime is a rising problem for small businesses in downtown Rochester, as it is in other places.
I visited several old-school business-lunch restaurants that were struggling.
“We gave up our office downtown because employees simply aren’t coming back. I don’t like this fact, but it is where we are,” said Patrick Bosek, CEO of Heretto, a content operations platform whose clients include Omnicell, Allstate and ForeScout (disclosure: it’s also in ASV’s portfolio). “Our policy on hiring is that we’re open to hiring U.S. employees no matter where they live. We’re fully a virtual and distributed company today.” He added that Rochester’s downtown may need to focus on attracting people, rather than businesses, because so many workforces have changed so fundamentally.
Rochester was surprisingly innovative in other ways. Greater Rochester Enterprise, for instance, is the economic development agency; most cities and counties have them. It just logged a big win with the announcement that Coca-Cola will invest $650 million in a dairy plant near Rochester. I got on the phone with CEO Matt Hurlbutt, who told me about an innovative economic development program, one I’d never heard of in the past five years of reporting on mid-tier cities: an “economic gardening” program offering free sales and marketing research for companies with 10-99 employees.
The Bigger Question: Attracting the Right People
Cities need resident troublemakers: Rochester has a few of those, too.
One of them, a former venture capitalist and founder of a Rochester advocacy organization called RocGrowth, Richard Glaser, took me on an impromptu tour and invited me to drop in at a packed tasting event at a food business incubator called The Commissary. I met coffee roasters and flan-makers, among other culinary entrepreneurs. Though many people judge the health of an entrepreneurial ecosystem on dollars, or the number of startups funded, one of the better indicators is the presence of people like Glaser and organizations like The Commissary, which aim to include all types of people. The sense of community draws and supports innovators and creative thinkers.
“If you want population growth and to be an appealing place to innovators, you’re going to have to foster greater diversity (among people),” Glaser said, adding diplomatically that in Rochester, when it comes to issues of race and diversity, “there are reasons for optimism, and reasons to keep working.”
The city of 210,000 is about 40% white, 40% Black, and 20% Hispanic, he noted.
Innovation finance is a challenge in almost every sector. But it’s especially hard when the innovations are physical, rather than software based (software is relatively easy to change). Medical devices, for instance, require years of investing in prototypes and testing. Another company I visited, AeroSafe, was founded in 1995. It’s seeking a round of financing, $25 million, to prepare itself for a sale, or to become an independent public company. It came to fame during the pandemic, when its packaging technology and ability to move boxes quickly became crucial to transporting the COVID-19 vaccine.
Femtech: EndoGlow’s Path To a Market
A number of local companies trace their beginnings to the University of Rochester. In 2006, it joined forces with the state’s economic development arm to found Excell Partners, a venture fund that focuses on hard tech innovation. The fund typically invests about $1 million in each company. At a gathering convened by Excell Partners CEO Theresa Mazzullo, I heard of EndoGlow.
EndoGlow was founded in 2017 by Dr. Paula Doyle. She is a surgeon specializing in female pelvic medicine and reconstructive surgery. Her career is her version of feminism, she said, “You can’t run a country or run a company if you’re leaking urine.” Dr. Doyle wanted to see better while she was doing minimally invasive surgery on women’s complex anatomy, which how she came to found EndoGlow.
She invented an egg-shaped device called the GreenEgg, which is inserted in the vagina or the rectum in women or men that fluoresces when it’s exposed to infrared light. Surgical cameras have near infrared filters that allow the surgeon to see outside the visible light spectrum.
Near-infrared allows the surgeon to see through blood and tissue. The GreenEgg has the inherent property of fluorescence in the near infrared wavelength. In short, the egg-shaped device glows, illuminating the texture and thickness of surrounding tissue.
Dr. Doyle’s company will start selling the device, which has been approved by the FDA, this fall. The slow development is partly a function of the testing and approvals required for medical technology. But the difficulties that women inventors and entrepreneurs face magnify delays. For instance, the venture community favors male leaders, according to the stats that show women raised less than 2% of capital in 2022. Knowing the obstacles they face, they often make choices to go slower or seek smaller amounts of investment.
Dr. Doyle said she was aware of male venture capitalists’ lack of interest in medtech for women. Eventually, she found business partners who had previously founded a device company, and they bootstrapped EndoGlow. “That awareness (from VCs) is starting to come up now,” she said, meaning that venture capitalists are beginning to be interested in the marked for medical devices that serve women’s needs. “That is new.” The U.S. market for EndoGlow is just under $1 billion, she said.
Another company tucked into the Eastman Business Park, Farther Farms, has raised more than $15 million for technology that uses high-pressure carbon dioxide to extend shelf life. Food that would otherwise require a cold supply chain can be made shelf stable and ready to eat, which could be revolutionary for developing countries. The innovation came out of research at Cornell University, CEO Mike Annunziata tells me.
With a team of 12, Farther Farms has been growing slowly, partnering with large businesses to test products and refine the process. To him, the biggest issue facing Rochester is relatively lower startup talent density, relative to cities like New York City and San Francisco. In terms of talent, Rochester lags and the people who do live here do not embrace a startup-centric lifestyle, which he describes as, “Sixty-90 hour work weeks, consistent effort, often from people who have previously worked at a high growth venture-backed startup.”
The Biggest Lesson
This ends up being the biggest lesson from the trip to Rochester. Governments, state and federal, have stepped up to supply new funding for innovation that is rooted in science, which often yields the greatest returns for society. Now, some of the smartest minds in the country are turning to the next question: Where are the people who will create the innovation, and how do leaders gather them around the right ideas?
“A lot of small to mid-sized businesses have emerged,” said Plympton, the CEO of Optimax. “To grow into a giant company, you really need a high-volume commercial application, like film or contact lenses. Those are like unicorns and shooting stars,” he added. In the meantime, he pointed out how much value the small and medium-sized companies produce, especially if their ownership stays local.
Optimax is now the largest precision optics manufacturer in the United States, with about 500 employees. Its technology has gone to Mars, Mercury, Pluto and the International Space Station. In the first 30 years, the company generated $500 million in revenue. If its growth plans come to fruition, in the next 30 years, Optimax will generate over $5 billion in revenue. With the company’s early investors paid off and the creation of the Optimax Employee Ownership Trust, about half the revenue goes to the employees through payroll, benefits and bonuses.
It’s not about growing one or two giants like Kodak, it’s about creating a few dozen companies like Optimax, that pay well and treat people with respect, Plympton said. “The companies that do the best job taking care of their workers are the companies that are going to have the most success recruiting and retaining their workforce.”
This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.